Debt Consolidation Loans Made Simple

Debt Consolidation Loans Made Simple


In today’s troubled economic times, debt consolidation methods have become increasingly popular, particularly debt consolidation loans. A debt consolidation loan involves taking out one loan and using the funds to pay off your other creditors.

Although debt consolidation loans are offered by banks and debt consolidation companies, you can comparison shop at online sites such as MoneySupermarket have loans.

Benefits

By consolidating numerous debts into a single debt, you can focus on making just one monthly payment. This monthly payment is often significantly lower than the total payments of all of your current bills.

If you are securing the loan against your home, you will frequently get a low interest rate. This can also help lower your monthly payments.

Getting a debt consolidation loan can also lower your stress levels because your creditors won’t be bugging you anymore. In addition, the repayment period is a fixed time frame, so you have a pretty good idea of when you’ll become debt-free.

If you have numerous lines of credit open and near their limits, you’ll suffer a ding on your credit score. Using a debt consolidation loan reduces your credit-available-to-credit-used ratio plus you’ll be paying off several debts in full. Both of those factors should give your credit rating a little boost.

Drawbacks

Despite the many advantages of debt consolidation loans, they also have a few disadvantages. With all of the fees and the interest rate, you often wind up paying more for your debts overall. If you only make the minimum monthly payment, it could take you longer to pay off your debts than it would if you had paid each of your creditors directly.

Debt consolidation loans frequently take your unsecured debts and make it a single secured debt by using the equity on your home. If you can’t make your loan payments, your loan company can seize your home as repayment.

Many people are tempted to use their credit cards once they have been paid off with the consolidation loan. This leaves you vulnerable to getting even more in debt. A good rule of thumb is to save one card for emergency purposes only and cut up the rest so that you will not be tempted to go on a spending spree.

Tips

People with good credit ratings and equity on their homes typically find the best deals on low interest consolidation loans. Be sure that the monthly payment on your new loan fits within your budget and that you can pay off the debt in a reasonable time frame.

Shop around for a debt consolidation loan with the lowest fees and the terms that work for you. You can compare the rates and terms of numerous loans on free and impartial price comparison sites such as MoneySupermarket in the UK.

Before you sign any loan papers, read all of the fine print carefully. Make sure that the loan has a significantly lower interest rate than what you’re currently paying. Check for any hidden fees and added costs such as credit insurance.

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